Investor vs. State Arbitrations

Suing governments a billion-dollar global corporate bonanza
February 1, 2013

The North American Free Trade Agreement was the first of a New World Order of trade agreements designed -- to borrow the words of the Trilateral Commission in 1975 -- to repeal "an excess of democracy in the Western world." It set a precedent never before dreamed of, let alone achieved, in international trade: the right of private investors to sue nations. And not just for millions of dollars, but billions, robbing national treasuries of the means to meet the social and economic needs of their citizens and, in many cases, pushing them back into extreme poverty.

One example serves to underline the appalling injustice of this new age of corporate government: U.S. cosmetics billionaire Ronald Lauder sued the Czech Republic under a bilateral investment treaty, and the Czech Republic was ordered to pay him $270 million, plus interest — the equivalent of the country's entire health care budget.

A Canadian government official puts it this way: "I've seen the letters from the New York and Washington D.C. law firms coming up to the Canadian government on virtually every new environmental regulation. Almost all of these initiatives never saw the light of day."

Such corporate "pre-emptive strikes" are on the rise, with investment arbitration no longer a last resort, but a political weapon in a wider war of attrition against states. Even already-adopted laws on public health and environmental protection have been abandoned or watered down because of the threat of huge damage claims.

NAFTA and its growing ranks of copycats -- like the Canada-Europe Trade Agreement and the Trans-Pacific Partnership -- are about nothing less than entrenching de facto government by transnational corporations. In the process, the corporations are not just enriching themselves, but also a global network of fabulously wealthy lawyers and accountants who are kept busy impoverishing governments and their citizens to achieve maximum profits for the multinationals they represent.

Since that historic signing of NAFTA in December, 1989, this world-wide network has largely operated in the shadows. But last November, Corporate Europe Observatory — which conducts research and publishes reports on corporate lobbying activities at the European Union and the United Nations — and a progressive think-tank, the Transnational Institute, jointly published a paper entitled Profiting from Injustice: How Law Firms, Arbitrators and Financiers are Fuelling an Investment Arbitration Boom.

Authored by Pia Eberhardt and Cecilia Olivet, the paper states that the last two decades have witnessed "the silent rise of a powerful international investment regime that has ensnared hundreds of countries and put corporate profit before human rights and the environment."

The rapacious success — and excess — of these latter-day robber barons can be traced through statistics. The number of investor-state lawsuits has soared from 38 cases in 1996 to 450 in 2011. The amount of money involved has soared, too. In 2011, American Lawyer Magazine reported that "bringing a million-dollar claim is no longer enough to stand out in a survey of international arbitration. Nor is it enough to win a measly $100 million." To really shine these days, an investment arbitrator needs to deliver a $350 million award, minimum. Elite law firms can charge as much as $1,000 per hour per lawyer, with whole teams handling some cases. Arbitrators also earn hefty salaries — in one reported case, up to almost $1 million.

"These costs are paid by taxpayers, including in countries where people do not even have access to basic services," the report states. The Philippine government spent $58 million defending two cases against German airport operator Fraport -- "money that could have paid the salaries of 12,500 teachers for one year or vaccinated 3.8 million children against diseases such as TB, diphtheria, tetanus, and polio."

"It has become clear that the arbitration industry has a vested interest in perpetuating a regime that prioritizes the rights of investors at the expense of democratically elected national governments and sovereign states," the report's authors state. "They have built a multi-million-dollar self-serving industry, dominated by a narrow exclusive élite of law firms and lawyers whose interconnectedness and multiple financial interests raise serious doubts about their commitment to deliver fair and independent judgments."

Investment arbitrators have an inbred bias to favour corporations over states, to encourage lawsuits against governments in crisis, to promote investment arbitration as a necessary condition for attracting foreign investment, and to encourage governments to sign investment treaties that use language maximizing possibilities for litigation.

During last year's global economic crisis, three law firms — American, British and Dutch — encouraged their corporate clients to sue debt-ridden Greece, using the threat of investment arbitration to force debt restructuring. While each of the partners in the U.S. firm alone saw their profits climb to $2.5 million, Greece lowered the monthly minimum wage for workers under 25 to $660.

Just 15 arbitrators, nearly all from Europe, the U.S. or Canada, have decided 55% of all investment treaty disputes. Canada has two members of this exclusive club: former Liberal justice minister Marc Lalonde and former Canadian ambassador to the United Nations Yves Fortier.

"Investment arbitrators have the power to divert taxpayers' money to corporations," the authors of Profiting from Injustice state. "They can decide to penalize governments for ensuring people's human rights to health, access to water or electricity, as well as the right to a healthy environment."

(Frances Russell is a Winnipeg-based author and free-lance columnist.)